Wells Fargo fined $3 billion for "fake account" scandal
Washington-- For fourteen years, Wells Fargo opened fake accounts by failing to get consent, misusing identities, or creating false records. The U.S. Department of Justice along with the Securities and Exchange Commission have now set a price tag on this violation of fiduciary responsibility: $3 billion.
The combined settlement also reveals the enormous pressure placed on employees by bank executives to hit goals.
“I had less stress in the 1991 Gulf War than working for Wells Fargo,” wrote one employee to senior management.
Starting in 2002, the intense pressure lead to many practices that were internally referred to as “gaming”. The core of the practices was misuse of customer’s identity and information to open checking, debit card, credit, and other forms of accounts. In some cases, employees would forge signatures based on files on record to open the accounts. In another case, PIN numbers would be used to move millions of dollars around to help verify unauthorized accounts. Customers were kept in the dark by simply changing contact information.
When companies cheat to compete, they harm customers and other competitors,” said Deputy Assistant Attorney General Michael D. Granston of the Department of Justice’s Civil Division. “This settlement holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope, and for its blatant disregard of customer’s private information. The Civil Division will continue to use all available tools to protect the American public from fraud and abuse, including misconduct by or against their financial institutions.”
While blame was originally placed on zealous, low level employees, additional information made it clear the toxic culture started at the top. Nearly unreachable goals, requiring staff to cross-sale customers on multiple bank products, even when they didn’t need them, was a key part of a company wide strategy to increase profit.
Despite knowing about these practices starting in 2002, senior management did little to stp it. Ultimately, bank leadership was forced to take responsibility for the toxic culture that lead to such behavior. The CEO and other senior leadership eventually stepped down and the company launched a major effort to improve their public image.
Still the “staggering size, scope and duration” of the illicit practices lead to the significant settlement.
"The top managers of the community bank were aware of the unlawful and unethical gaming practices as early as 2002," the settlement said.
The fine pales in comparison to the company’s size. In 2018, they paid shareholders $25.8 billion--and during the time of the fraud they paid out hundreds of millions of dollars.
But the company is not out of the woods. The agreement leaves open the chance that current and former Wells Fargo employees could face charges for the behavior, especially as many rank and file employees raised concerns about bank practices. It also addresses the fake-account scandal, not other claims about problems in the financial institutions behavior towards auto and home loan customers.
“When bank workers started to raise alarms about Wells Fargo’s fake account scandal, managers retaliated against us. To make matters worse, frontline employees like us were unfairly scapegoated for trying to meet intense sales pressures,” said Kilian Colin of the Committee for Better Banks in a response to the settlement.
